Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Self-funded retirees should hold the line in turbulent times
Internationally, it could be the Chinese Artificial Intelligence (AI) company DeepSeek that’s sending shock waves through the AI world and western governments alike. Or Trump’s on-again, off-again tariffs and musings on Gaza and the Ukraine. Even the Magnificent 7 are apparently finished.
When local factors are added – private credit defaults and a Reserve Bank stubbornly holding the line on the cash rate – then it’s little wonder many self-funded retirees can be heard muttering those immortal words of Hannahan, “we’ll all be rooned”.
The daily headlines would only reinforce this impending sense of doom, prompting some to think it’s time to sell their assets and switch to cash. Not only is it offering four per cent, but it comes with a government guarantee.
It’s very understandable. As investors, professional or not, and let’s be honest very few of us are professional, we are fixated on the risk or damage that a drop in the share or property market will have on our wealth. This is particularly so for self-funded retirees for whom a weekly salary is a distant memory.
The most common question I get from prospective clients is: “Should I invest today when the market is at all-time highs?” My answer might surprise some – it’s an unequivocal “yes”.
Sure, the US bellwether index, the S&P500, is trading towards the upper end of its long-term trend, but this is just the S&P500. No one is forcing you to put all your money into the S&P500, and with it the Magnificent 7. There are loads of alternative investments to considered, even if you stick to the US market.
In some ways, the S&P’s active versus passive data has done a disservice to investors, reiterating (with solid evidence) that between 70 to 80 per cent of fund managers underperform their benchmarks over the long-term. While this may well be the case, it begs the questions: why are these fund managers underperforming?
Many, but not all, are underperforming because they are holding something different to the index which is seen as a bad thing. Yet given the growing levels of concentration risk, isn’t diversification and being different to the index a positive? At least in the short-term, and potentially as a source of insurance.
The ability to choose for clients between passive and active options is one reason I’m still comfortable investing today, with a preference, for now, to invest in more actively managed strategies.
Sticking with equity markets, I’m becoming more comfortable with higher valuations in stocks boasting intellectual property and brand value. Technology businesses are evolving, for better or worse, as opposed to depreciating, so maybe a higher valuation is warranted, at least for now…
The main reason I’m comfortable, however, is that I’m not just buying the market. I’m buying a portfolio of assets that work together, with a common goal in mind: to fund my client’s retirement.
While it may be uncomfortable to see some assets, companies and funds underperform, this is what gives me the most comfort – focussing on building resilient portfolios for clients that span multiple asset classes, which will include both winners for events such as DeepSeek and Trump, but also losers, as without them, the diversification just isn’t real.
Let’s not forget that we are in one of the best periods for investors in recent memory, with the returns on low-risk assets at much higher levels than at any point in the past two decades. At times like this, it behoves self-funded retirees to inform themselves of all the options available to them. You may be pleasantly surprised at what you discover.
